In real estate, taking care of properties involves more than just the buildings themselves. One vital part is managing the money related to those properties, and that's called property management accounting.
It's more about handling money matters for different properties, like rent money, expenses, and taxes. This helps make sure everything stays balanced financially.
Property management accounting is crucial because it ensures all the financial transactions are in tune and timed correctly. This is super important because it helps property managers and investors make wise choices, use resources well, and keep their properties financially healthy.
However, this task takes work. It requires a great deal of accuracy and precision.
Failure can lead to severe consequences like inaccurate financial records, overspending, and losses. This is why automation is essential.
Automation gives property managers valuable tools to make their money management even better. This article will explore five ways to improve your property management accounting through automation.
What is Property Management Accounting?
Property management accounting is like keeping a detailed diary of the money that flows in and out of properties. It is one of the critical roles of a property manager.
Just like you track your pocket money, property managers and owners track the money earned and spent on buildings and land.
Property management accounting is similar to general accounting. It helps property managers and owners know if they're making a profit or not.
With accurate financial records, they can make intelligent decisions about how to use the money, whether for fixing things, paying taxes, or making improvements.
There are various transactions involved in the real estate business. For example, income from rent or sales and expenses from repairs, utilities, taxes, and salaries.
Proper property management accounting fits these transactions together to see the big picture of the property’s financial health.
Key Components of Property Management Accounting
Invoice and Billing
Just like in every business, you do need to send out invoices to your tenants or customers. The invoices and bills in real estate are for rent, services, or sales. As a property manager or owner, you issue your tenants invoices showing how much they need to pay.
Importance of Clear Invoicing and Billing
Clear invoicing and billing make it easy for the tenants or customers to know what they are paying for.
Imagine giving your tenants a super confusing bill. They will scratch their heads, wondering what they are paying for, and become irritated.
Your invoice should be well-detailed. Every vital information, from your company’s name (including the agent’s name) to a description of the property, the total amount, and so on, should be clearly stated in the invoice.
As a property owner, clear invoicing helps you track who paid what.
Expense Tracking
This involves closely monitoring the money spent to keep properties in good shape and running smoothly. These expenses are called operational expenses.
Operational expenses include electricity and water bills, plumbing maintenance, and other services that keep the property going. Other expenses include tax, property insurance, advertising, etc.
In tracking these expenses, it is essential to categorize them. It helps you know where each one falls.
Categorizing your expenses shouldn’t be so difficult. An excellent property management and accounting system can help you with it within seconds.
By keeping a detailed record of your expenses, you can know where your money is going and if it needs to be adjusted.
Bank Reconciliation
Property management accounting also involves matching and balancing the recorded transactions with bank statements.
This is how you track irregularities in your finances. Your bank statements can say one thing, and your internal records can say another.
When this happens, it means that there is a problem, like mismanagement of funds or inaccurate financial entry.
Bank reconciliation helps you spot inconsistencies between the documents. By finding them, you can fix them and ensure your records match the bank’s records.
Financial Statements
Finally, you need written documents that show your property’s financial performance. The financial statements are necessary for tax and investment purposes.
There are three main types of financial statements you must have: income statement, balance sheet, and cash flow statement.
Income Statement
The income statement records all your income for the month or year. It contains all the money your property gets from rent and other sources.
The income statement is also called a profit and loss statement, as it shows the property’s financial performance over a specific period.
Balance Sheet
The balance sheet documents the property’s assets and liabilities.
To manage a portfolio of properties, you need to have a detailed balance sheet. It also records each shareholder’s equity at a given time.
The balance sheet statement shows information about the total amount of cash at hand and the liabilities that may arise when a property is sold.
For commercial properties, the statement shows the overall property value and the debts owed in a mortgage.
Cash Flow Statement
This statement is the final report on your property’s financial health. It is a summary of the cash movements of the property.
The cash flow statement records what comes in and out, bridging the income statement and the balance sheet.
To better understand the transactions that happened during a given period, you need a cash flow statement. It also shows how these transactions affect the property’s finances.
Because these financial statements are critical, you must be extra careful, paying attention to every detail.
Why Automate Your Property Management Accounting?
Accounting can be complex as it deals with lots of numbers and calculations. It’s easy to get overwhelmed.
However, it is also easy to become bored because you keep doing the same repetitive tasks for long hours.
Fortunately, technology makes everything easier. Why be primitive when you can make your life easier and hassle-free?
Automation means using technology to increase your output. This means that you can perform tasks accurately and get faster results within a short time. There are other reasons to automate your property accounting.
Fewer Mistakes, More Efficiency
Manual bookkeeping and accounting are prone to errors, especially in calculation and handling numbers. Automation reduces the risk of these errors.
It uses clever computer programs to handle numbers and data. This reduces the chances of mistakes like repetitive tasks, miscalculations, and double entry; thus making the work faster and smoother.
Saves Time and Resources
Instead of spending hours manually typing in numbers and organizing data, automation can perform these tasks in a snap.
Therefore, you can save more time and focus on other critical administrative roles.
Additionally, automating your accounting tasks gives a faster turnaround. You get quicker and more accurate results.
Better Data Storage and Retrieval
Accounting is complex as it involves lots of paperwork and big financial entry books. Before technology became widely accepted, financial documents were stored in a safe or an old cabinet.
Over time, these documents (papers) became old and fell apart. In some cases, they were lost to accidents like fire.
The files that are not lost are stored in rows and it isn’t easy to access them. In fact, going through the piles of financial records becomes an arduous task.
But with automation, the files are easier to store and retrieve. In a hundred years, you can still access financial records without any hassle.
The files are stored in a database and can be retrieved by searching for the file name or other tags used in storing it.
You can create as many backup files as you want in case one file is erased.
Real-time Tracking
Automation allows you to monitor your financial data in real-time.
You can instantly see how money is moving in and out, enabling you to respond promptly to any financial changes.
Typically, without automation, tracking financial data involves manual data entry and is time-consuming. By the time you get the final number, the original figures might have changed, and you won’t know till it is too late.
With automation, the financial data is updated automatically. So, you can see exactly how much money comes in from rent and how much has been spent on maintenance.
Scalability
As property portfolios grow, managing accounting manually can become overwhelming. Automation can handle larger volumes of data and transactions without you increasing our effort.
For example, imagine you are managing a few properties. Managing the money and keeping track of expenses is manageable to a certain extent when doing so manually.
However, as you add more properties to your portfolio, the number of transactions and data increases greatly.
It would become tedious to keep up with the different finances. Automating the accounting processes makes it easier to handle all of them in one go.
Enhancing Property Management Accounting Through Automation
Now you have seen the various reasons to automate your property management accounting, the next thing to know is how to automate it.
Automating isn’t difficult. All you need is the basic information and easy-to-use software.
1. Choosing the Right Software
Automation is all about using technology to simplify tasks and maximize output. Hence, it all starts with choosing the right software that caters to your unique needs.
Every property business is unique and has its own needs. Various accounting software caters to various conditions.
For example, some software is best for simple bookkeeping, balance sheets, or profit and loss statements.
What matters is that your chosen software meets your company’s accounting needs.
Also, your accounting software should be able to connect with your property management system. This way, when money is moved around, it is automatically tracked without any effort.
It is best to get software that allows you to customize things to fit your needs. You can add special features, change settings, and make it work the way you want.
With this, you can become more efficient in managing your properties and handling your finances.
2. Integration and Data Management
Automation brings information from different places, like rent payments, bills, and expenses, and puts them in one organized spot. This helps prevent confusion.
For integration to work, you must choose property management and accounting software that offer integration features.
You don’t have to look too far because Booking Ninjas has an integrated accounting system that makes financial management much more straightforward. It offers integration features and can connect with other tools you use.
For proper integration, here is what you should do:
- Set up data sources: Identify the sources for your financial data, like rent payments from tenants and bills from maintenance expenses. Your PMS should be able to collect information from these sources and other financial transactions.
- Automate data entry: Instead of entering data into different systems manually, use automation to transfer data automatically. This involves setting up rules that tell the software where to put specific types of information.
- Use APIs: Application Programming Interfaces (APIs) are the bridges that allow different software to talk to each other. If your software has APIs, you can link your property management and accounting tools.
- Map data fields: Ensure that data from one system matches the format of the other. For instance, if your property management software records rent payments in one way and your accounting software uses a different format, you'll need to map these fields so that the data can be understood correctly.
- Regular updates: Set up a schedule for data updates. This could be daily, weekly, or as needed. Automation can help in fetching new data and updating your records automatically.
- Test and monitor: After setting up the integration, test it thoroughly to ensure data moves accurately. Keep an eye on the integration to ensure it works as expected.
- Train your team: If you're working with a team, make sure everyone understands how the integration works and how to troubleshoot common issues.
3. Real-Time Reporting and Analysis
As a property manager, automation allows you to see how money is coming in, where it's going out, and how the property performs financially.
With real-time insights, you can spot trends early and take action before things go wrong. You can also adjust budgets, find new ways to save, and keep your properties on a solid financial track.
Your accounting software should have a real-time reports section that shows the latest financial information.
Here is how to analyze and record real-time reports:
- Understand the data: Reports might look like charts, graphs, or tables. They show information like income, expenses, and overall financial health. It is easy to understand the data presented.
- Spot trends: Look for patterns in the data. Are expenses increasing? Is rental income stable? Trends help you see where things are going and if any adjustments are needed.
- Monitor goals: The real-time report is a great way to monitor your financial goals. If you set financial goals, see how you're doing. Are you meeting your targets? If not, you might need to tweak your strategies.
- Regular check-Ins: Real-time reports are most valuable when checked regularly. Set a schedule to review them – either weekly, monthly, or quarterly.
4. User-Friendly Interface and Support
Your accounting automation software should have a user-friendly interface. You should be able to use it without feeling lost.
Also, your software should have training resources, like videos and guides. These resources will help you become a master at using the software, making property management accounting an easy task.
But the training videos are not just for you but for your team as well. Your accounting team can efficiently operate the software when needed.
5. Scalability and Continuous Improvement
Automation is not a one-time thing but an ongoing process.
The world of property management is constantly changing. Hence, you need to stay up to date.
Continuous improvement means you're always looking for ways to make things work even better.
Maybe you find a faster way to collect rent or a more brilliant way to track expenses. This improvement makes your property management even more effortless.
By continuously improving your automated processes, you're keeping up with the latest and most excellent methods.
How Can A PMS Improve Your Property Management Accounting?
If you are managing an apartment, a hotel, or other properties that require multiple tenants or guests, maintaining an updated accounting record can become very overwhelming.
A property management system makes all your administrative roles as a property manager easier.
With automation, it handles tasks like tracking rent, calculating expenses, and creating reports – all without you lifting a finger.
Booking Ninjas is an all-in-one solution for effective property management. It has excellent accounting software features that allow you to manage your accounting in one ecosystem.
There is no need to move data around whenever you want to store your financial records.
Booking Ninjas is so user-friendly that you don’t need to be a tech expert to maximize its potential.
Furthermore, Booking Ninjas is a cloud-based software. Hence, all your financial data is safely stored and secured from unauthorized access.
As a property manager or owner, you can manage your property’s finances hassle-free.
There are many other amazing features our software offers. Check out our website or contact us to see how we can help you improve your property management accounting.